Ed. Note: This article is about Wisconsin, however, many states should be asking the same questions. Legalization is probably coming to your state soon.
One of the key phrases in Rock County’s marijuana advisory referendum, which passed handily Nov. 6 with 69 percent support, asked voters if the substance should be “taxed and regulated like alcohol.” The concept is simple enough: If you’re 21 or older and possess a valid ID, you could buy marijuana from a licensed retail vendor—just like alcohol. But Wisconsin’s alcohol regulations are complex, and the policies overseeing the lengthy supply chain before consumer purchase aren’t common knowledge. In light of 18 successful marijuana advisory referendums across the state, The Gazette took a closer look at how alcohol regulation works and how a similar system might be applied to marijuana. It should be noted that marijuana remains illegal in Wisconsin. The referendums were only meant to gauge public opinion, but some local legislators are now more supportive of at least medical marijuana after last week’s vote.
The state Department of Revenue governs alcohol regulation. Wisconsin, like other states, has a three-tier system with producers, distributors and vendors making up the tiers, said Tom Ourada, an excise tax specialist for the agency. Basically, the three-tier system dictates that producers must sell alcohol to distributors, who then sell to vendors. There are exceptions, such as brewpubs or microbreweries that are allowed to make and sell their products on site. The three-tier setup originated after the Prohibition years, when alcohol distribution was largely regional. Before Prohibition, a small number of providers could control the entire market in one area, Ourada said. All three tiers in the system are subject to various taxes. Those rates depend on the type of alcohol. Liquor is 86 cents per liter, and most beer is $2 per barrel. Wine has a 6.6-cent tax if its alcohol content is less than 14 percent; otherwise that fee roughly doubles, he said.
Quotas for alcohol licenses from municipalities are based on population. The city of Janesville can give out 97 licenses for bars and restaurants. Only 91 such licenses are currently in use, Janesville Clerk-Treasurer Dave Godek said. The city has full control over alcohol vendor licenses, and Janesville has 24 of those. It does not keep a formal waiting list of license applicants, he said. Local regulations may be tighter than statewide rules. Janesville ordinance requires a separate entrance for liquor departments at grocers, gas stations and convenience stores, Godek said. Rock County Board member Yuri Rashkin, who led the effort to get the marijuana referendum on the local ballot, thinks alcohol’s three-tier system might be too complicated for cannabis. He hasn’t looked into the specifics of marijuana regulation but said Wisconsin should look at what other states with recreational or medical marijuana have done. “Luckily we don’t have to reinvent the bicycle. There are several states, plenty of states, with well-developed infrastructure for regulating marijuana and cannabis,” Rashkin said. “We’re in a position where we can benefit from best practices of what works in other places and make local adjustments.”
Ten states and Washington D.C. have legalized recreational marijuana, and most of those states impose a stiff sales or excise tax. In Colorado, one of the first states to legalize cannabis, a single purchase of a marijuana product might get taxed five different times depending on where it is bought, according to a tax policy research group. Ourada said a Wisconsin fiscal estimate last year for a full legalization bill in the state Assembly projected marijuana could eventually generate $138 million annually in state tax revenue. That’s more than double the $60.9 million generated in the last fiscal year by the alcohol tax. Alcohol tax revenue goes into the state’s general fund and does not go toward a specific purpose, Ourada said. It’s unclear whether revenue from a marijuana tax would be handled the same way. Speaking hypothetically on possible marijuana legalization, Godek said Wisconsin has more than 80 years’ worth of alcohol regulations that have been amended over time. Creating an entire system from scratch would challenge state policymakers. “You could probably use alcohol licensing as a framework, but alcohol is in some respects a little bit different,” Godek said. “Do you have that three-tier system of marijuana growers, marijuana distributors and marijuana sellers? What does that distribution and sales look like? “There’s so many different ways to do it. … Our alcohol regulations generally work in the state, and so it would be a good framework to start from. But then we’re getting outside what I have a real good feel for.”